What Are Commercial Banks?

Definition:- An institution which accepts deposits, makes

business loans, and offers related services. Commercial
banks also allow for a variety of deposit accounts, such as
checking, savings, and time deposit. These institutions are
run to make a profit and owned by a group of individuals,
yet some may be members of the Federal Reserve System.

A commercial bank is a type of financial intermediary and a type

of bank. Commercial banking is also known as business banking.
It is a bank that provides checking accounts, savings accounts, and
money market accounts and that accepts time deposits. After the
Great Depression, the U.S. Congress required that banks engage
only in banking activities, whereas investment banks were limited
to capital market activities. As the two no longer have to be under
separate ownership under U.S. law, some use the term
"commercial bank" to refer to a bank or a division of a bank
primarily dealing with deposits and loans from corporations or
large businesses. In some other jurisdictions, the strict separation
of investment and commercial banking never applied. Commercial
banking may also be seen as distinct from retail banking, which
involves the provision of financial services direct to consumers.
Many banks offer both commercial and retail banking services.

Commercial bank has two possible meanings:

Commercial bank is the term used for a normal bank to distinguish
it from an investment bank.
This is what people normally call a "bank". The term "commercial"
was used to distinguish it from an investment bank. Since the two
types of banks no longer have to be separate companies, some have
used the term "commercial bank" to refer to banks that focus
mainly on companies. In some English-speaking countries outside
North America, the term "trading bank" was and is used to denote
a commercial bank. During the great depression and after the stock
market crash of 1929, the U.S. Congress passed the Glass-Steagall
Act 1933-35 (Khambata 1996) requiring that commercial banks
engage only in banking activities (accepting deposits and making
loans, as well as other fee based services), whereas investment
banks were limited to capital markets activities. This separation is
no longer mandatory.

It raises funds by collecting deposits from businesses and

consumers via checkable deposits, savings deposits, and time (or
term) deposits. It makes loans to businesses and consumers. It also
buys corporate bonds and government bonds. Its primary liabilities
are deposits and primary assets are loans and bonds.

Commercial banking can also refer to a bank or a division of a

bank that mostly deals with deposits and loans from corporations
or large businesses, as opposed to normal individual members of
the public (retail banking).

The role of commercial banks:

Commercial banks engaged in the following activities:

• processing of payments by way of telegraphic transfer,

EFTPOS, internet banking, or other means
• issuing bank drafts and bank cheques
• accepting money on term deposit
• lending money by overdraft, installment loan, or other
means
• providing documentary and standby letter of credit,
guarantees, performance bonds, securities underwriting
commitments and other forms of off balance sheet
exposures
• safekeeping of documents and other items in safe deposit
boxes
• currency exchange
• sale, distribution or brokerage, with or without advice, of
insurance, unit trusts and similar financial products as a
“financial supermarket”